Annuity rule could be scrapped

RULES forcing pension savers to buy an annuity when they reach 75 are closer to being scrapped following a House of Lords vote.

Currently, people with personal pensions and other money purchase-type schemes use at least three-quarters of their pension savings to buy annuities – insurance plans that pay lifetime incomes.

The Lords voted 198 to 144 in favour of scrapping the rule, which will put pressure on the Government to remove it altogether.

The Bill will have to return to the Commons for further debate only days before the end of the session on Thursday.

Annuities have come under fire in recent years for offering poor value. Low interest rates and the fact that people live longer have combined to make them less attractive.

Former Treasury Minister Lord Higgins, for the Tories, said the rule was unfair given the halving of annuity returns in recent years.

It was also wrong that people should be forced to hand over their 'pension pot' to an insurance company by a particular age when they did not think it was to their advantage. Many questioned whether they would live long enough to get their money back.

Lord Higgins said 'it is a bit thick' for ministers to argue that this would hit final salary schemes when the Government's imposition of a £5bn a year tax had resulted in the demise of many schemes.

He said: 'There are many people who are in no sense rich who object to having to be forced to take an annuity, which many of them object to in principle.'

Director of the Retirement Income Reform Campaign Dr Oonagh McDonald, who is a former Labour MP, said: 'This is the news millions of people saving for their retirement have been waiting for. The outdated compulsory annuity purchase rule is close to being scrapped.

'After years of campaigning, this is perhaps the most important victory for the Retirement Income Reform Campaign.'